And More Cold Water From Goldman: "Bernanke Speech Suggests Fed Squarely In Zone Of Inaction"

Following the earlier note on the "irrational exuberance of QE3" at current conditions, Goldman does a one-two to the face of the long-only slow money crowd which are about to realize that what goes up the escalator, will go down the elevator, repeating that the next round of monetary easing "would require a notable further deterioration in the outlook to be considered seriously." As a reminder the only "outlook" the Fed keeps an eye out on is the 50 DMA of the Russell 2000.

Just out from Jan Hatzius:

Fed Chairman Bernanke's speech at the International Monetary Conference acknowledges slower growth but views this as at least partly due to temporary factors. Easy monetary policies “are still needed” given the economy continues to perform “well below its potential.”

1. Fed Chairman Bernanke began his remarks by acknowledging the "slower than expected" growth so far this year. He specifically cited supply chain disruptions stemming from the Japanese earthquake and tsunami as a factor slowing growth in Q2. However, despite the "frustratingly slow" pace of recovery thus far, Bernanke sees growth as "likely to pick up somewhat in the second half of the year" as manufacturing activity normalizes and gasoline prices ease a little.

2. Noting the headwind from fiscal drag, Bernanke emphasizes the need to “move quickly to enact a credible, long-term fiscal consolidation plan.” His wording makes clear that he sees a strong case for rapid decisions and action, but a tightening that is gradually phased in so as not to be “self-defeating”. Such a plan could also provide short-term benefits if it improved confidence and/or lowered long-term borrowing rates. In the question and answer session following the speech, Bernanke ducked a question asking him to choose between near-term stimulus and long-term tightening, repeating that he saw the problem as fundamentally long-term in nature.

3. Bernanke notes "the recent increase in inflation is a concern" but suggests that "there is not much evidence that inflation is becoming broad-based or ingrained in our economy". Given that gasoline prices account for most of the pickup in inflation, Bernanke takes the view that "developments in the global market for crude oil...rather than factors specific to the US economy" are the main driver of higher inflation in recent months. Bernanke goes on to argue that the sharp increase in commodity prices in recent years is primarily driven by strong gains in global demand alongside constrained supply, rather than the byproduct of easy Fed policies. In any case, he expects considerable labor market slack and stable long-term inflation expectations to keep US inflation restrained going forward.

4. No surprises in the commentary on monetary policy: "QE2" is to wind down at the end of the month, but reinvestment of principal payments on the Fed's securities holdings will continue. In Bernanke's words: "Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established." That implies a fairly high bar for any monetary tightening. At the same time, there is of course no mention of the possibility of another asset purchase program--this would require a notable further deterioration in the outlook to be considered seriously. In short, we remain well within the “zone of inaction” for the Fed.

5. In the question and answer session following the speech, Bernanke attributed recent weakness in the US dollar partly to the relaxation of risk aversion following the crisis, and partly to the “quite weak cyclical position” of the US economy relative to many trading partners (especially emerging markets). In his view, the best way for the Fed to support the dollar “in the medium term” is to keep inflation stable and help the US economy recover.

Fool he may be, but even so, he is catching on: “These numbers indicate that the banking system never put the QE2 money to work in the economy,” he says. “They simply redeposited it back in the Federal Reserve itself. However, the new money did have one clear impact. It drove up asset values.”

still trading. 6 pennies. i agree "tough day today, down 28 percent." still, has a high of 11 pennies. still doesn't have the "billion bucks" from Barclay's yet ("appealed")--sounds like a lot of money. who knew something so little could be so expensive?

While John Thain will be enjoying his creme of the crap status of reviled interior decorators for some time, Dick Fuld is about to upstage him in the shady asset transfer category. Cityfile hasbroken the following bombshell: the Gorilla's $13 million home on Jupiter Island, which was held by both Mr and Mrs Dick, was recently transferred singly to Kathy. Dick sold his portion of the house on 265 S Beach Rd, Jupiter Island to his wife for the princely sum of $100. The transfer occurred on November 10, as the sordid details of Lehman's bankruptcy were becoming public knowledge.

In what many consider to be the boldest call on the Street in a while, Punk Ziegel's Dick Bove called Citigroup[C37.58-0.49(-1.29%)]the best buying opportunity he’s ever seen.

I think the stock will be trading at $55 in the next 3 years, concludes Bove, which is double from where it is at the present time. “You only get a once in a generation chance to buy a stock like this at this price. This is it,” he says. (March 7, 2008)

Sent out under Mr. Cramer's name, with the subject line "My portfolio is CRUSHING the S&P 500," the email said Action Alerts PLUS is "producing some truly incredible results." From Jan. 1, 2002, to April 1, said the email, the portfolio's "total average return has averaged more than DOUBLE the return of the S&P 500." An accompanying bar graph showed the S&P 500 returning 15.5%, versus 39.2% for Mr. Cramer's portfolio.

Incredible indeed, if you include dividends for Mr. Cramer's portfolio and exclude them for the S&P 500. With dividends, the total return of the S&P over the same period was 38.3%.

The Fed was paying those banks to keep the excessive reserves at the Fed, which discouraged lending. You see the Fed used bailout money to bailout banks from all that bad paper. But in so doing they where paid/told/arm twisted to keep much of the reserves (if not all) at the Fed. And this was because of the fear of inflation/hyperinflation happening (which is already happening). They knew that the banks would start over again if allowed to put that money back into the system and re-leverage. They also knew that if done, all that printed money would do what I described earlier to cause the hot economy to become to hot. And if they wanted to cool it down they couldn't because raising interest rates would be a dagger on those assets that aren't worth the paper it's written on. They wanted to hold these assets so that in some future time they can slowly wind them down.

The problem is that these assets where owned by investors, and they still had to be paid regardless. So the longer you held them the more the value of the house went down compared to the amount of the mortgage or mortgages that where taken out on them, so people where walking away. And all this shadow inventory that have houses sitting with nobody in it is being damaged to the point that you couldn't sell it if you wanted to for any decent amount of money. What truly amazed me today was the fact that Obama himself said that he dismisses a double dip recession. He knows that everything failed and is trying to sing along a silver lining for everybody.

These assholes have been claiming the economy is on the verge of recovery for 3 years now, treating us as if we're fuking dumbasses! And maybe we are, for not yet smashing their faces to a pulp and hanging them all up on light poles!

Confidence blew with that Fed speech, Dog. Prepare for Plunging and Screaming trades. No more free money to criminal syndicate Wall Street = end of the dumbass light volume mark up rally.

So true...three years..."we're almost there"...to our summer of recovery. Three years and $7 trillion in fiat stimulous. Unbelievable that the sheeple are so still and so quiet. Minus a US default, the sheeple have condemned their children to be the payers of this debt nightmare.

Let's see if our children actually pay it though. I'm slowly coming to the opinion that this debt is going nowhere, the next generation is going to laugh at what we've done, and the 100 year central banking clusterfuck is going to end in a spasm of indiscriminate hangings.

We'll all be stranded in zombieville. Banks sitting on free money from the Fed, milking taxpayers with credit card fees while they have their HFT algos "make money" in a perpetual sideways market of meaninglessness.

It's a dream world built to keep us under control in order to change a human being into a financial slave. Welcome to the desert of the real.

With most S&P 500 companies having reported operating profits for Q1 2011, roughly 68% of them have exceeded analysts’ expectations. The highest rate of upside surprises came from sectors historically associated with the midcycle phase of expansion.

The rate of growth for both profits and sales continued to moderate, relative to recent quarters, but remained at healthy levels. Earnings and sales results surpassed expectations across most sectors.

Earnings guidance has remained firm for the coming year, as companies continued to be upbeat about prospects for profitability despite headwinds from higher energy prices and other macro challenges.

No. We have had a brutal debt overhang for a long time everyone is in the same boat. But most peg so they drink uncle ben's inflation and will always feel the pain because of said peg .... The dollar is still King no other choice, not China, not the E.U.

The dollar being low helps the global monsters that call the USA home. Look at the earnings of google, apple, halliburton, boeing, yum brands, starbux, wal mart, ford, prudential, johnson and johnson ....booming over the last 8 quarters

(Reuters) Tue May 31, 2011 - China's regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world's second-biggest economy.

The plan is the first concrete move by the government to tackle the bad debt in local government financing vehicles.

Wednesday, February 10, 2010
Looming Problem of Local Debt in China-- 1.6 Trillion Dollar and Rising

Did China accomplish the impossible? Did it generate almost 9% growth and maintain low debt to GDP ratio even as its export plummeted by 20%? What about claims that the torrent of investment in China has come without too much leveraging? After spending half a year looking into the debt level of local government investment entities-- some 8000 of them-- my conclusion is no. As in the past, the Chinese government just ordered banks to lend to investment companies set up by both central and local governments. Local governments have fully taken advantage of the green light in late 2008 and borrowed an enormous sums from banks and bond investors starting in late 2008 (well, a large amount even before that). In an editorial in the Asian Wall Street Journal yesterday, I outline some problems with this massive amount of borrowing:

Beijing is no longer sure how much money local investment entities have borrowed from banks and raised from bond and equity investors. The amount, however, must be large. In September, the Chinese press, citing government sources, suggested that these entities have borrowed $880 billion (6 trillion yuan). In a January interview with the Twentieth Century Business Herald, a Chinese newspaper, the vice chairman of the Finance and Economic Committee of the National People's Congress, Yi Zhongliu, revealed that local investment entities borrowed some $735 billion in 2009 alone.

These are mere guesses, however. A National Audit Agency audit conducted late last year uncovered so many problems with the data that Premier Wen Jiabao ordered another large-scale audit of local investment entities. Until a thorough audit is completed and the results announced to the public, no one really knows the total scale of local borrowing.

Given the information vacuum surrounding this issue, I spent half a year collecting data that would allow me to provide an estimate of total local debt (and also for each of China's provinces). Again, in the WSJ piece, I briefly outline my methodology and the results in the piece.

To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities' borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China's 2009 GDP and 70% of its foreign-exchange reserves.

Yep. Late 2008 redux. Wailing and gnashing of teeth at the loss of QE. If Congresscritters don't relent, market crash will be programmed to go on until the sheep are *begging* for further QE-based slavery. Uncle Lloyd needs his 0.2% Fed window fix so he can *$!*#%@ you in the ass with 30% int on your remaining credit card. Can we parachute Max Keiser into the next Bernanke meeting so he can shriek at him. I would so love to see Goat Boy void in his pants on live tv.

More than the QE1, QE2, ZIRP, etc. is the sum of all of it wrapped in huge budget deficits / debt and trade deficits...all of it is resulting in the weak dollar on life support. That is the mothers milk of this rally.

Absent the continuation of the downtrend (via QE3, etc.) in the dollar, I daresay nearly all fortune 500 will suffer and maybe mightily.

they don't seem convinced of anything reading that. "brownian motion" theory??!!! that's nothing but code for "who the phuck knows?" ("phucknose? who has a phucknose?" says the Bernank in one of the more awkward moments of heated Fed policy discussion minutes.) they weren't even sure if these asset purhcases would have any effect on treasury rates! as an uber-bear on this project i stand humbled before "the madness of crowds." (with hat tip to Fukushima as inappropriate and wrong it is to say that. can't deny its truth, yes, yes?) and as admitted by the authors "lower yields does not necessary result in higher equity prices either" and of course "may in fact mean the opposite"! those that have bought into "the bernank" however have been richly rewarded because "what alternative has he given us as asset managers?" gold? you gonna advise the NYState Pension Board to "go all in on gold?" not that i would mind that of course! point being "it's called buy low/sell high for a reason" and now we know...insofar as the past two years is concerned "100 percent ain't bad." did the same in treasuries? how about foreign equities? cash when the Fed is monetizing the debt???? and of course "the big kahuna" called real estate. "put yourself in the shoes of an actual asset manager and ask what he/she is doing here." needless to say "this is in no way an indictment of gold or silver as an asset class."

The disaster in Fuckyoushittin'me is indeed temporary in the following sense.... Somewhere between now and forever, it will be fixed (whatever that might mean, similar to War is Peace or Arbacht mach frei) the mess cleaned up (by what standard is debatable, indeed questionable to the point of moot irrelevance) area repopulated (with what, nobody has a fucking clue) returning to a productive nature (depends upon what the meaning of is, is) so, Benji can rest easy that he's told the truth, the whole truth and noting but the truth, so help him Yo'mamma.And so can you.

Smiles and applause all around.Praise be to the God of Mushroom Farming.

This Fed Res article blew my mind. My question is what happens when the monthly purchases go down from 100 billion / month down to the reinvestment level of about 17 Billion / month. My guess is it will be a credit, commodity and Stock bloodbath. Right now the players in the know have been and continue to slowly pull out of the market, the tipping point comes when the sheeple start to catch on and pull out. Gonna be an interesting summer.

The Fed can "leave interest rates low" by creating pari passu fake money and making real depositor's money worth-less. Something is worth less when the alternative fake new counterfeit FRNs drive real money into 0.5% de minimus return. What does the current market return in terms of Swiss Francs?

Ah, I said it in the previous post: this "Tyler" is the best. Does Jan have the patent on the phrase "zone of inaction"? Because it quickly summarizes what is to be expected for the next 6 months: an inactive Fed, just passively reinvesting divi proceeds like an IRA account possessor. Expect alot less drama in the Fed circus this summer, as the world goes to hell in a hand-basket. Look towards Trichet and the Motley Euro goons for excitement this summer. The Fed, it is inactive this summer.

That's when you know China has peaked and about to fall off a cliff... when they start buying up the golf courses. Remember back in 1989 when Japanese investors were buying paying ungodly sums for golf courses. It was a sure indication that economic expectations were fully detached from reality. It will be interesting to see how China handles its stock and real estate markets plunging 75%.

The squid is the Queen of Headfakes -- they are gaming you if you don't believe QE will continue...oh sure it will take a Freedom of Info Request a couple years to prove it was going on when they say it wasn't, but they can't raise iterest rates. The Fed is in a box - and not a little Blue one from Tiffany's

With goldman saying this, I would look for qe3 announcement with three weeks. Goldman makes statement, markets sells off some, goldman buys the lows and rides it up as fed capitulated on qe. All done with the feds blessing. If they say black, I turn to white. They are as trustworthy as a filthy whore telling you they are clean.

Cushing, Oklahoma is drowning in WTI from a myriad of traditional sources to which Canadian sands oil is added. Many in the oil business believe that this distortion in WTI relative to the rest of the world is not only significant but likely permanent enough to question the validity of WTI as an international crude benchmark. You're right. And a boat load of folks have taken what appear to be quite permanent baths assuming the spread to return to a more "historical" norm.

Next.... Watch the current appeal by several entities in one segment of the oil business who've recently petitioned the SecState'soffice to halt pipeline deliveries of Canadian tar sands distilates to the US predicated upon "ecological risks."Yes, read it again.Go figure.

The whole "Growth" story in this economy since 2008 has just been easy money, the economic "empty calories" that built nothing. Even glimpsing reality will make 'em sh*t themselves: wake up! We're in the middle of The Greater Depression but we've been too drunk to realize.

After all these years does anybody really consider any public statement from the money-worshiping vermin at GS to be actionable?

Its another random disinformation campaign for the bewildered herd and the MSM. Nobody of any real wealth is getting their investment advice from a public source - not in years - and keeping their wealth.

"Zone of inaction" is GS code for QE3 for the elite banks only.

I really do not see asset prices, employment or the national character improving until the community and regional banks are consolidated under the primary dealers under some Basel 3 tough love program. So keep waiting for 2018 friends - if there is even an Amerika left.

Define 'real wealth'. To be anecdotal, most of my neighbors are old as dirt here in SW FL, and had put into the pig ponzi in the 70's or 80's. They have zero clue about current conditions and could care less as long as the dividend spice flows. They made it through 87 and 00, and see no difference now. It's scary.

can't argue with bewilderment. and i mean that literally: "you LITERALLY can't argue with bewilderment." i've tried. it doesn't "work"--"so let's hope it does!" as such i would argue "the herd is baffled" moreso than "bewildered." sauce for the goose? have you even seen a "bewildered herd?"

Asset prices, employment, and the national character will ALL head south, like you said. Check out David Michael Greer's book, "The Ecotechnic Future". In the "return on energy investment" department, we're badly overdrawn. The only question is, "Will we run out of money before we run out of oil?"

A correlation between oil production declines and debt overhang? Can someone produce the chart???

Hmm, 10%+ deficits as far as the eye can see and massive unfunded liabilities.... sooner or later, they'll have to print.

I'm not an economist/trader but with ZIRP, aren't the primary dealers effectively able to monetize the deficit?

that seems inflationary to me?

look at PM's - they aren't showing any sign of this impending deflationary apocalypse everyone now thinks is imminent... forget the 20% drop that triggers QE3 - QE3 is already here! and when the market realises, the Crack Up Boom will continue.

But in the deflationary apocalypse, all the rules become meaningless. Inflation and QE3 in this case, and all the subsequent QE iterations, are like a man using a shovel to get out of quicksand.

Or, for another analogy, we'll all die paupers, buried in an avalanche of worthless money. Deflation is like having no food or water. Inflation in a deflationary apocalypse is like having no food or water on a planet made of solid gold.

As equities and commodities sell off, where does the money go? Into bonds, and more specifically into US Treasuries. Sorry but it is what it is. The stealth QE is on the part of the banks (brother can you spare I dime, cause I ain't got no mo Pomo) buying treasuries with every bond manager and his uncle piggybacking. It will be the "No QE" QE, which is rather impressive if you think about it. And as the SPX heads back to 1050, more time is bought, cans are kicked down the long deleveraging road. Corporate balance sheets can withstand the deluge. Zero interest rates will assuage the fall in asset prices. With truth and foodstamps for all, we head down the merry path of salary convergence with Asia. Middle Class? We don't need no stinking middle class ...

QE3 will happen, but you'll need an over 20% stock correction. The FED will attempt to bid the USD up, keep China happy. As Faber says, and he is 100% correct, Bernanke is a S&P500 watcher (he gauges stocks prices)...and of course money printer.

I think there'll be a correction after QE 2 in stocks as anticipated here at ZH. I think there'll be a dip in gold, too, and it will be a good buying opportunity. If gold dips 20%, that's OK for me too.

QE3 not before fall. And once it comes everything will be a lot lower. So get out of Indexes, commodities and dollar shorts as long as you can. Those not respecting the charts and drying up liquidity (see GSR) will get a religious experience.

April 29/ May 2 was the peak and will remain that way for months - maybe even for years. Draw the lines. Draw trend channels - it's everything there, for everybody to see.

In a market with more liquidity like what Greenspan and Bernanke provided the PE ratio gets skewed. In a bear market it returns to normal. I guess if they had their way the PE would be 50 times , similar to the banking leverages being observed now and permitted by the so called authorities who use tax payers money to bail out the banks.

Trading in the markets is a no win situation with HFT and the systemes being used as unfair advantage. It has become a mugs game.